Lock the White House Watch Newsletter for free
Your Guide to Washington and the World's 2024 US Election Means
On March 3rd, Donald Trump made two very important decisions. One was to impose tariffs on Canada and Mexico at a rate of 25% and Chinese imports at a rate of 10% above the 10% imposed last month. A 25% tariff on imports from the EU is expected to continue. Together, these four economies produce 61% of US imports. Another more important decision suspended US military aid to Ukraine, giving the haunted nation what appears to be Hobson's choice between surrender and defeat. Trump's friend Vladimir Putin must be ec: the US president is torn west in front of his happy eyes.
These are merely decisions of two decisions in the whirlwind that comes with the second President Trump. But in the outside world, they are very important. They represent the end of the liberal, predictable, rules-controlling business relationship with the world's most powerful countries, and the relationship with the countries that created the system itself. They also represent a US abandonment of central partnerships and commitments in favour of closer ties with their former enemies. Trump clearly believes Russia is more important than Europe.
In both cases, he's grossly wrong. As Maurice of Seld, former chief economist at the IMF, points out, US trade obstacles are not due to fraud by trading partners, but rather by exceeding expenditures on income. The Republican-controlled Senate plan to put Trump's 2017 tax cuts will permanently guarantee that this deficit will last, at least as long as it funds the market. With this in mind, trying to close the trade deficit with tariffs is like trying to flatten a completely filled balloon.
Some content could not be loaded. Please check your internet connection or browser settings.
Understanding this requires knowledge of macroeconomics and Trump is totally lacking. But this is not his only stupidity. Trump also said, “To be honest, the European Union was formed to ruin the United States. That's the purpose. And they did a good job with it.” Furthermore, he said of Europe:
Both complaints are ridiculous. The EU was formed to bring prosperous economic relations and political cooperation on two terrible war-torn continents. For a long time, the US has understood and actively promoted this wise response. But that was alas, we were very different from today's self-important flaws.
Furthermore, as a Danish economist, Jesper Rangvid points out in his blog, Trump is seeking only bilateral trade in goods, ignoring the transactions of services and income from capital and labor. The revenues that the US earned from exporting services to the eurozone at least, and the labor wages exported there offset the bilateral deficit of the goods. The overall bilateral account balance between the eurozone and the US is close to zero, but this is also not important. However, bilateral balances for goods only are less important than overall bilateral balances. Considering how he makes his money, Trump has been holding a huge deficit in his merchandise throughout his life. It appears that he has rarely done much harm to him. (See the chart.)
In Mexico and Canada, exports of goods to the US were 27% and 21% of GDP in 2023, respectively, which means the economic costs of these tariffs are high. The EU exports to the US were only 2.9% of GDP in 2023. But it would still be an unfair, in fact, an economically illiterate act of economic war. The EU needs to retaliate. Transatlantic relations will be permanently damaged.
Some content could not be loaded. Please check your internet connection or browser settings.
Even the trade war, even outrageous, pales in comparison to the ambush of Voldymir Zelensky in an oval office by the US President and Vice-President last Friday and the subsequent suspension of military aid to Ukraine. The goal may be to force Zelenskyy to sign a mineral trade. But the bigger problem is that Zelenskyy has distrustful of Putin for good reasons, and now there is no basis for trusting Trump. Also, Trump may want a “peace agreement,” but if Ukraine is taking him for him, why would Putin agree to the real thing?
Both men underestimate the will of the Ukrainians as free people. However, if that objective is achieved, Europe must take on the burden of ensuring its own defense and supporting Ukraine's defense. Germany's next prime minister, Friedrich Merz, was right when he said, “The absolute priority is to strengthen Europe as quickly as possible, and in stages we can truly achieve independence from America.” These steps should also be performed quickly. One is to accelerate the relocation of more than 200 million euros in seized Russian reserves to Ukraine. The other is a huge accumulation of defense now that the US commitment to NATO has collapsed.
Some content could not be loaded. Please check your internet connection or browser settings.
EU Plus UK has a combined group of 3.6 times the amount of Russia's electricity purchased and GDP combined. The problem is not the lack of human and economic resources. If Europe can work effectively together and Russia can balance militaryly over the long term. However, the difficulties are moderately executed as Europe is unable to create some important military equipment and it depends on it and Ukraine. If Europeans buy them, will the US refuse to supply such weapons? It would be a true moment to refuse such a supply.
Trump is fighting economic and political wars on his American allies and dependents. However, the resulting collapse of trust in countries, and the trust in countries that shared their values would be very expensive for the United States as well.
Martin.wolf@ft.com
Follow Martin Wolf mast And on Twitter
